Finance (No. 4) Bill

Elizabeth Truss Excerpts

Wednesday 18th April 2012 Commons Chamber

[Owen Smith]

I am not going to give way again to hear more obscurities of protocol. They are nonsense and are just being used to distract attention from the measures.

[Elizabeth Truss (South West Norfolk) (Con)]

What impact does the hon. Gentleman think having the highest rate of income tax in the G20 has on this country’s competitiveness?

[Owen Smith]

We do not know—[Laughter.] Conservative Members might laugh, but I would like to see them present some evidence on this, instead of the flannel and rhetoric that we are hearing—[Interruption.] The Minister is waving the HMRC report. Will he point to the part of it that gives definitive data on the impact on competitiveness of any rate of tax? There is nothing about that in the report, which is why he is not getting up to point it out. Come on! Let him show me the part of the report that substantiates the point made by the hon. Member for South West Norfolk (Elizabeth Truss).

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[Elizabeth Truss]

I am delighted to see the back of the 50p tax rate. Of all the shallow, politically motivated activities of the last Government, it was possibly the worst. They spent 13 years enjoying the fruits of the 40% top rate of tax that had been put in place by our reforming Chancellor Lord Lawson in 1988. It was a bold move at the time to create a top tax rate at that level, but, as we have seen, other countries around the world have been reforming their tax systems and tax rates in order to become competitive and to face the other countries—the emerging economies—that are now competing on the world stage.

The 50p tax rate was announced in the 2009 Budget, five weeks before the last general election—an election the Labour party knew it would lose. Can things get any more cynical? That was the ultimate scorched-earth policy, and it has done enormous damage to our economy. Labour knew the economics were flawed, and the increase in the tax rate from 40p to 50p raised only a third of the £3 billion it had predicted. Meanwhile, between £16 billion and £18 billion was moved forward into income in the previous year, diverting productive activity from industries that we needed to thrive in order to keep our economy going during the recession. The change to the rate was made purely for political motives.

[Mark Reckless]

My hon. Friend makes a powerful case for the merits of a 40p top rate of tax. Will she therefore support the Opposition amendment?

[Elizabeth Truss]

I am not quite sure whether their amendment expresses what they wanted it to express. As with the HMRC report, there may be some uncertainty about what exactly the Opposition intend to do.

First, the introduction of the 50p tax rate diverted resources from the productive economy at a very important time—just as we were heading into the worst recession, thanks to the dreadful economic policies of the previous Government.

[Sheila Gilmore (Edinburgh East) (Lab)]

How can people postponing their income from one tax year to another, but nevertheless presumably still getting that income, prove so damaging to the economy? Is the hon. Lady suggesting that, having got the income a year early, they simply sent it abroad? Surely it can still be invested.

[Elizabeth Truss]

When income is artificially moved from one year to the next, it is not properly used for investing in projects. Under the previous Government, a lot of expenditure went into unproductive areas of the economy. Much of it went on excessive public spending and into the property industry, leaving us with the scorched-earth situation that we have had to address.

The signal that the previous Government sent to the rest of the world was that Britain was anti-aspiration, anti-business and anti-work. That happened at a time of increasing international competition, as it is now ever easier to move people and capital around the world because of improved technology and globalisation. Other countries were reforming their tax system, however, so as they were moving forwards, we were moving backwards.

[Kwasi Kwarteng]

Will my hon. Friend outline just how uncompetitive the 50p rate was compared with the rates of other G20 countries?

[Elizabeth Truss]

It was the highest income tax rate in the G20. We heard earlier from the Opposition spokesman that Labour did not understand the effect that that would have on our international competitiveness, which shows why it is not fit for office.

[Harriett Baldwin]

Did my hon. Friend share my shock at hearing the Opposition Front-Bench spokesman arguing that the sensitivity of the top rate of tax is static? The logic of that argument is that the top rate should be 75p, 80p, 90p or, perhaps, even 100%.

[Elizabeth Truss]

Yes, and perhaps some Opposition Front-Bench Members should move to France, where they might find that such policies are more conducive to their way of thinking.

At this time of increased international competition and great movements of people and capital around the world, and with new economies rising such as in India and China, according to the World Economic Forum Britain is 94th in the world in respect of the effect and extent of our taxation. One factor in that is the top rate of tax under the previous Government, and another is the extremely long tax code, which is a result of their meddling with our tax system over many years.

The UK is 11% less productive than the G7 average, and our skills base is lower than that of the US, France and Germany. If we are to become competitive again and improve our productivity and skills, we need incentives for people in this country to work and to invest in their skills, and we need to rebalance the tax system away from income tax and taxes on work such as national insurance, which the previous Government increased. We also need to reform our education and welfare systems and take the 2 million lowest earners out of tax, in order to give everybody more incentive to work. We must also merge our income tax and national insurance system to make things simpler for employers. We need to get rid of the previous Government’s flagship 50p tax rate as well, as it has done so much damage to people in this country who are seeking to work, to invest and to be part of building our future economy.

The Government have made it clear that we want shareholders to have proper control over executive pay in their companies, and that must happen. People must be rewarded in line with the skills they use, the risks they take and the income they generate. We need incentives for people to set up businesses, and to create and produce more. We also need to look outside Britain and see what the rest of the world is doing. We need to move away from the myopic approach that it does not matter what is going on elsewhere. If our country takes that approach, we will not succeed.

[Chris Bryant]

I had not intended to speak in this debate, but the previous—[Interruption.] I am grateful for all the waves from Government Members. The contribution of the hon. Member for South West Norfolk (Elizabeth Truss) has prompted me to speak, however.

First, I want to talk about what my hon. Friend the Member for Pontypridd (Owen Smith) referred to as the constitutional shenanigans. For many centuries, it has been a convention in this House that only a Minister of the Crown can lay a charge or an amendment to a Finance Bill that increases or changes a charge and thereby adds a duty to the people of this country, but that is a mistake. The myth that we have a Budget needs to be exploded, too. We do not have a Budget. What we have is a speech by the Chancellor of the Exchequer, followed by a Finance Bill and some Ways and Means resolutions. In addition, we have a separate process whereby Supply is granted. That system does not result in our properly evaluating whether we are raising money properly and fairly and whether we are spending it properly. I know many of these processes have existed for a very long time, but they lead to profound confusion in most ordinary voters’ minds about how we in this House conduct our business.

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[Chris Bryant]

I will give way to the hon. Member for South West Norfolk, because I referred to her directly.

[Elizabeth Truss]

The point that the hon. Gentleman makes is a political one. Is not the crucial issue here the economics and what will actually benefit his constituents? Should he not be considering the issues of whether they will have jobs, whether new businesses will flourish and whether people will aspire to work harder? Rather than the political presentation, should he not be considering the economic case?

[Chris Bryant]

I will deal with the economic case, but this is where I fundamentally disagree with the hon. Lady ideologically. I do not think we can put economics and politics into separate boxes; the one drives the other. If we want a happier country, where people prosper because they feel that the whole of society is engaged in the same endeavour, we have to make sure that it feels as if everyone has equally got their—I am going to get my metaphors all mixed up—shoulder to the grindstone. I say to Government Members that in my constituency it does not feel that that is the case at the moment. It feels as if the poor are having a very rough time, and there is very little prospect of changing that. I believe that my hon. Friend the Member for Pontypridd said that 2,700 unemployed people in his constituency were going for 200 jobs. The statistics are even worse just up the road in my constituency. It is not a question of someone getting on their bike and going somewhere else to find a job, which is why the politics matter. I am talking not about party politics, but about the sense of whether we are genuinely all in this together.